Ryan E. Caster, CPA
Federal Reserve expands the loan options available to businesses and increases the maximum size of organizations eligible to participate
On April 9th, the Federal Reserve provided details regarding actions they were taking to support small and mid-sized businesses impacted by the coronavirus pandemic. One of these programs was the Main Street Lending Program (MSLP or the Program). The MSLP, in its original form, offered four (4) year loans to organizations employing up to 10,000 workers or with annual revenues of less than $2.5 billion. As the MSLP was being finalized, the Federal Reserve sought feedback from lenders, borrowers and other stakeholders.
Today, the Federal Reserve issued a press release announcing certain changes to the MSLP based on more than 2,200 responses received during the feedback period. As a result of the feedback received, the Federal Reserve elected to expand the loan options available to businesses and increased the maximum size of organizations eligible to participate in the Program.
Under the guidance of the initial version of the Program, an organization was determined to be eligible if the organization had fewer than 10,000 employees or had annual revenues of less than $2.5 billion. Under the guidance released today, organizations that employ up to 15,000 employees or have annual revenues of less that $5.0 billion are eligible to participate in the Program.
New Loan Option
The initial version of the Program included two options: Main Street New Loan Facility (New Loan) and Main Street Expanded Loan Facility (Expanded Loan). Today’s press release introduced a third loan option with increased risk sharing by lenders for borrowers that have greater leverage. This new loan option is referred to as the Main Street Priority Loan Facility (Priority Loan). Under the Priority Loan option, lending institutions would retain a 15% share on loans, as opposed to a 5% share under the New Loan and Expanded Loan options. The term of the Priority Loan option will be four (4) years, consistent with the New Loan and Expanded Loan options. The maximum loan size will be the lesser of $25.0 million or six times a borrower’s adjusted EBITDA. Payments of principal and interest under the Priority Loan option will be deferred for one year, consistent with the New Loan and Expanded Loan options. Repayment amounts for years two through four will be 15%, 15% and 70% respectively, under the Priority Loan option. The rate for the Priority Loan option will be LIBOR + 3%, consistent with the New Loan and Expanded Loan options.
Minimum Loan Size
The minimum loan size for the New Loan and Expanded Loan options per initial guidance was $1.0 million. Under the guidance released today, the minimum loan size for the New Loan and Priority Loan options will be $500,000. Under the Expanded Loan option, the minimum loan size will be $10.0 million.
Based on the above, the Federal Reserve is making a concerted effort to support the economy by expanding the scope and eligibility requirements of the Program, while offering additional loan options. They have not yet announced when the Program will start, but an announcement with the start date is expected soon.
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